1. Field of the Invention
At least one aspect of the present invention generally relates to methods for financing ownership of a vehicle.
2. Background Art
In a typical vehicle leasing arrangement between a vehicle manufacturer and a vehicle customer, a vehicle dealership supplies the vehicle to the vehicle customer and the vehicle leasing company retains ownership of the vehicle. At the end of the lease term, the vehicle customer usually has two options: (1) the vehicle customer can return the vehicle to the vehicle dealership (which in general is returned to the vehicle leasing company), (2) the vehicle customer can purchase the vehicle for the purchase option price.
Under typical leasing agreement terms, the vehicle customer has the first option to purchase the vehicle. In turn, if the customer decides not to purchase the vehicle, the dealership can purchase it from the vehicle leasing company. If the LEV is less than the market value, the customer or dealership usually purchases the vehicle to preserve the equity in the vehicle or turn a profit (if the vehicle is sold) equal to the difference between the LEV and the market value. If the LEV is greater than the market value, the customer and dealer passes on their option and the vehicle leasing company remains the owner of the vehicle. Consequently, the vehicle leasing company absorbs a loss equal to the difference between the LEV and the market selling price. This problem is commonly referred to as the residual loss problem.
Vehicle ownership plans financed by a finance company, bank or other financing institution can avoid the residual loss problem associated with typical leasing arrangements. Under a typical vehicle ownership plan with an indirect finance company, the vehicle customer purchases the vehicle from a dealer and enters into a retail installment contract (RIC) (a contract which evidences the purchase of the vehicle on credit over time) with that dealer. The dealer then assigns that RIC to the finance company. Under a typical ownership plan with a direct finance company or bank, the customer obtains a loan from the bank or other finance company and uses that loan to purchase a vehicle from a dealer. In such case, the finance company, bank or other financial institution would not have the residual loss responsibility since it does not own the vehicle.
Vehicle ownership plans may not fit all of a vehicle customer's concerns. In recent times, vehicle customers are generally motivated by lower monthly payments and vehicle ownership. Leasing is generally recognized as the primary tool to deliver low monthly payments. On the other hand, vehicle ownership plans typically require substantially higher payments at similar terms.
To align the vehicle customer's concerns of low payments and ownership, automotive companies have created alternatives to typical leasing programs and vehicle ownership plans. For example, Mazda Motor Company has offered the “Progressive Payment Plan”. The vehicle customer purchases a vehicle from a Mazda dealer on a RIC which is assigned to Mazda American Credit. The customer then makes monthly payments to Mazda American Credit in order to pay off the RIC. According to the “Progressive Payment Plan”, Mazda Motor Company pays half of the monthly payment for six months and pays a quarter of the monthly payment for the next six months.
Although this program and similar programs offer low initial payments and ownership, these programs do not address trade cycle management. Trade cycle management is the practice of promoting vehicle trade-in and purchase of a new vehicle. As a result, there exists a need to provide a method for financing ownership of a vehicle with a RIC or a loan having a RIC or loan term which offers low initial payments and vehicle ownership while promoting vehicle trade-in and purchase of a new vehicle by providing a decision point, which is at or about the midpoint of the RIC or loan term.